IMF Says Crypto Crash Hasn’t Hit Broader Financial Market

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Updated: Jul 27, 2022, 10:47 UTC

In a new report that raises grave concerns about the global economy, the IMF sheds light on crypto market turbulence

Key Insights:

The IMF has shared its outlook on the global economy in light of surging inflation and continued global supply chain disruptions.
The report stated that the crypto sell-off has not harmed the broader financial system.
IMF Chief Kristalina Georgieva urged investors earlier this year not to abandon the crypto market.

The International Monetary Fund (IMF), a specialised agency that facilitates international trade and secures the stability of the global monetary system, has spoken out about recent crypto market turbulence.

The Washington-based institution, which has become notorious for flagging the significant financial risks associated with cryptocurrencies, stated that despite a “dramatic” sell-off, spillovers to the “broader financial system” have been avoided.

Global Financial Stability

In its new report entitled ‘World Economic Outlook Update: Gloomy and More Uncertain’, the IMF provides a projection for the global economy in light of surging inflation, Russia’s war on Ukraine and continued global supply chain disruptions.

Despite the recent crypto crash erasing more than $2 trillion in value from the market and wiping out nearly $40 billion in investors’ capital, the IMF recognised that its impact on global financial stability has been “limited so far”.

The report acknowledged that the crypto sell-off led to “large losses in crypto
investment vehicles” and “caused the failure of algorithmic stablecoins and crypto hedge funds” but according to the IMF, this has not harmed the broader financial system.

Terra Collapse

This comes after the managing director of the IMF, Kristalina Georgieva urged investors earlier this year not to abandon the crypto market despite Terra’s crash which was led by the algorithmic stablecoin UST losing its peg to the U.S. dollar.

Terra went from being valued at more than $50 billion to collapsing into a state of disrepair in the span of a week and this set off a chain reaction that erased more than $2 trillion from the overall value of the cryptocurrency market. In addition, the world’s largest cryptocurrency, Bitcoin (BTC) fell below $20,000 – its lowest level since December 2020.

Georgieva stated: “I would beg you not to pull out of the importance of this world. It offers us all faster service, much lower costs and more inclusion”. She added that it’s the responsibility of regulators worldwide to put up guardrails and offer education to protect investors.

In its report, the IMF also cut global growth projections for 2022 and 2023, labelling the world’s economic outlook as “gloomy and more uncertain”. As such, the agency now expects the world economy to grow 3.2% this year, before slowing further to a 2.9% gross domestic product (GDP) rate in 2023. The amendments represent a decrease of 0.4 and 0.7 percentage points, respectively, from previous predictions.

The IMF attributed this outlook to challenges stemming from soaring global inflation, a worse-than-expected slowdown in China and the ongoing fallout from the war in Ukraine.

About the Author

Mohadesa Najumiauthor

Mohadesa Najumi is a British writer who has worked within crypto, forex, financial technology, and the stock market industry. Mohadesa received her MSc in Political Science and International Relations at the University of Amsterdam.